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BUY SINOPHARM GROUP 1099 HK
@ HKD 19.96
Sinopharm Group Co., Ltd. is a Chinese pharmaceutical company. The parent company of Sinopharm Group was Sinopharm Industrial Investment, a 51–49 joint venture of state-owned enterprise China National Pharmaceutical Group and civilian-run enterprise Fosun Pharmaceutical.
Sinopharm Group researches and develops, manufactures, distributes, and markets medicine and other healthcare products. Sinopharm Group manages factories, research laboratories, traditional Chinese medicine plantations, and marketing and distribution networks that extend throughout China.
Its H shares were listed on the Hong Kong Stock Exchange in 2009, with its IPO price of HK$16 per share.
Sinopharm came to public eyes in the world with the COVID-19 pandemic when it developed one of the first deactivated virus vaccine.
BBIBP-CorV, is one of two inactivated virus COVID-19 vaccines developed by Sinopharm. In late November 2020, it was in Phase III trials in Argentina, Bahrain, Egypt, Morocco, Pakistan, Peru, and the United Arab Emirates (UAE) with over 60,000 participants.
On December 9, the UAE announced interim results from Phase III trials showing BBIBP-CorV had a 86% efficacy against COVID-19 infection. In late December, Sinopharm announced that its internal analysis indicated a 79% efficacy. While mRNA vaccines like the Pfizer–BioNTech COVID-19 vaccine and mRNA-1273 showed higher efficacy of +90%, those present distribution challenges for some nations as they require deep-freeze facilities and trucks. while BIBP-CorV could be transported and stored at normal refrigerated temperatures.
BBIBP-CorV shares similar technology with CoronaVac and BBV152, other inactivated virus vaccines for COVID-19 being developed in Phase III trials.
BBIBP-CorV is being used in vaccination campaigns in numerous countries in Asia,Africa, South America, and Europe.
On March 26, 2021, Sinopharm said more than 80 million doses had been administered, and it expects to produce one billion doses of BBIBP-CorV in 2021.
Sinopharm Group employs 108’000 people and generated US$70 Billion in revenues in 2020.
The company reported its 2020 results on March 26th 2021, posting record revenue numbers and earnings per share. The full impact of the COVID Vaccine will be felt in 2021 with a 13.5 % jump in expected revenues.
Sinopharm’s medical device and retail segments should drive 2021 revenue growth after demand for medical supplies soared amid the Covid-19 pandemic and improvements to its pharmacy network and model.
The company’s core distribution business should also rebound this year, enhanced by vaccine distribution. Its extensive network and cold-chain monitoring strength should allow it to dominate local outreach and ensure vaccine safety, bringing value from its distribution deals with Fosun and SinoVac.
Recent government cost-control schemes, including diagnosis-related group-based payment and volume-based procurement for generic drugs, may have a marginal negative impact on Sinopharm’s revenue.
Several recent developments reinforce Sinopharm’s lead in China’s drug distribution. Its unmatched national reach will be likely be strengthened by the addition of medical devices to its product line, with new payment regulations aiding cash flow.
Sinopharm secured a source of sales growth with the acquisition of China National Scientific Instruments and Materials, the country’s largest medical equipment distributor, which contributed 14% of revenue in 2018. The acquisition came just as revenue growth from drug distribution flattened as a result of discounts. High-value consumables such as implants and prosthetics have the greatest potential within the devices business due to their higher gross margins — generally 35% versus 25% for low-value consumables. Medical equipment, with its low double-digit margins, offers higher returns than the single digits from drug distribution.
The company is on a solid growth path in an industry that is renown for low margins. Revenues and Operating profits should grow from all-time highs to all-time highs in 2021 and 2022 at a 10 % plus clip.
The impact on COVID Vaccines on net profits and earnings per share is not yet accounted for as the pace of vaccination and supply shortages makes it difficult for analysts to make forecasts. Analysts are also remaining prudent due to the effects of Government procurement policies that tend to put downward pressure on drug prices.
But, judging from the 2020 results where the company reported revenue and net income growing by +7.3% and +14.9% YoY, better than expected, the trend for 2021 with 1 billion doses expected to be sold should be solid.
Sinopharm Group is a typical Value stock despite operating in a growth segment. The company is currently trading at its lowest valuations ever with a 6.6x expected earnings , 0.93x book value and a 4.11 % dividend yield.
On March 21st, the company declared a 2020 dividend of 0.69, a 15 % increase over the previous year and is expected too pay a 0.79 dividend in 2021.
As the bottom chart shows, never has the company trade so cheaply.
Analysts have been upgrading the stock with 19 BUYS, 3 HOLD and zero SELL ratings and an average target price at HKD 25.84, a 20 % increase form current price.
SInopharm Group shares are breaking out of an extended period of consolidation after having crossed above its ST Weekly Moving Average, a sure sign that a new trend is at its beginning.
After a significant bear market since 2018 that saw the stock price fall from 45 to 15, despite ever rising revenues, profits and earnings per shares, the company has now made a clear bottom and is ready to climb towards to 30 level, a logical target that would only put its Price to Book ratio a 2x, in line with its long term average.
Sinopharm group is abnormally cheap and then contribution of its COVID-19 vaccine is not yet priced. Technically, the bear market is over and we see the current levels as a great entry point for long term investors.
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